TSX Treads Water as Elevated Yields Weigh on Stocks

Canada's TSX was stagnant on Thursday as bond yields remained high. The US 10-year government bond yield hovered around 4.786%, while Canada's 10-year yield stayed at approximately 3.797%. This is a concern for investors, as higher yields make safer assets more attractive and increase borrowing costs across the economy.

On the other hand, commodities provided some support to the market. Brent crude traded above $97 a barrel, and gold and silver prices rose after yields eased slightly. This could benefit Canada's energy producers and miners, which are a significant portion of the TSX.

The Bank of Canada maintained its policy rate steady, but Governor Tiff Macklem warned that officials were prepared to hike rates multiple times if inflation persists. The upcoming jobs reports in the US and Canada will be crucial in determining interest rate direction. Strong hiring could keep pressure on central banks to remain restrictive, while softer data might allow yields to decrease.

The impact of higher borrowing costs is being felt in the housing market. Fixed mortgage rates are closely tied to long-term government bond yields, which influence lenders' funding and hedging costs. As a result, even if the Bank of Canada doesn't raise its overnight rate, fixed-rate offers may not become cheaper if investors continue to price in a 'higher for longer' scenario.

The Toronto Regional Real Estate Board reported that Greater Toronto Area home sales fell in August for the first time in six months. This is consistent with the pattern of higher borrowing costs reducing affordability and cooling transaction volumes before affecting prices.